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Published in: Journal of Economics and Finance 4/2022

09-07-2022

Time–frequency return co-movement among asset classes around the COVID-19 outbreak: portfolio implications

Authors: Seyed Alireza Athari, Ngo Thai Hung

Published in: Journal of Economics and Finance | Issue 4/2022

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Abstract

This study explores the time–frequency return connectedness of the four most relevant asset classes namely, equity, digital assets, commodity, and fixed income. To do so, we use the novel proxies of the S&P500 Index for equity, the S&P Cryptocurrency MegaCAP Index for digital assets, the S&P Goldman Sachs Commodity Index for commodity, and the S&P Global Developed Sovereign Bond Index for fixed income, and also employ the wavelet analysis for daily data over the period 2017: M02 to 2021: M09. In contrast to the pre-COVID-19 period, our findings indicate that the interdependence between the selected asset classes has intensified across all time scales and frequency bands during the COVID-19 crisis, proving the lack of hedging opportunities. Besides, the findings reveal that there is a significant lead-lag relationship between time series at medium and low frequencies during the research period, and the directional connectedness among asset classes is sensitive to frequencies. Especially, the co-movements among the pairs are pronounced during the COVID-19 outbreak. Remarkably, the wavelet-based Granger causality test corroborates the wavelet results and underscores there is a significant causal link between the variables during COVID compared to pre-COVID. Moreover, the results of the portfolio risk analysis by employing the value at risk (VaR) measure indicate that portfolio diversity advantages vary among frequency and across time. The results of the present study provide insight and might help foreign portfolio investors diversify their portfolios across different asset classes.
Footnotes
1
See studies by Kirikkaleli and Athari (2020), Athari et al. (2021), and Kondoz et al. (2021).
 
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Metadata
Title
Time–frequency return co-movement among asset classes around the COVID-19 outbreak: portfolio implications
Authors
Seyed Alireza Athari
Ngo Thai Hung
Publication date
09-07-2022
Publisher
Springer US
Published in
Journal of Economics and Finance / Issue 4/2022
Print ISSN: 1055-0925
Electronic ISSN: 1938-9744
DOI
https://doi.org/10.1007/s12197-022-09594-8

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